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Communtity Law Manual | Credit & debt | High cost consumer credit contracts

Credit contracts: Hire purchase, loans and other credit

High cost consumer credit contracts

What is a high cost consumer credit contract?

Credit Contracts and Consumer Finance Act 2003 ss 45C

A high cost consumer credit contract is a contract that has an interest rate of 50% or more – whether that is made up of an annual interest rate or other fees (including default interest). Some personal loan finance companies offer loans with extremely high interest rates and high fees and charges. They may focus on how many dollars a week the repayments are and not focus on the total you will pay back over time.

What interest and fees are allowed to be charged?

Credit Contracts and Consumer Finance Act 2003 s45E, 45H, 45I, 45J

The government has brought in new rules to protect consumers from the harm caused by running up excessive debt from not being able to pay high interest loans. The total cost of borrowing (which includes credit fees, default fees, interest charges and any other fees or charges passed on by the creditor) can’t be more than the first loan advance. For example, if you borrow $500 from a high cost lender, you should not have to pay back more than $1000 in total.

The lender also can’t charge you compound interest. Normal interest is based on the loan amount, and compound interest is based on the loan amount and the interest that is charged in every period (interest on interest).

The maximum rate of interest that can be charged is no more that 0.8% per day.

Default fees for missed or late payments must be $30 or less, unless the lender can prove that a higher fee is not unreasonable.

Can I enter into more than one high cost contract?

Credit Contracts and Consumer Finance Act 2003 S45G

If you were still paying off a high cost credit contract within the last 15 days, you can’t sign up to another one.

If you have already entered into tw0 high cost contracts in the last 90 days, you can’t sign up to another one.

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